TTC 2011 Budget Preview — Part I: Operating

At its recent meeting, the TTC considered a staff report on the 2011 budget including Operating (the so-called conventional system’s day-to-day costs and revenues), Wheel-Trans and Capital (major repairs and expansion).  The material in this report is only an overview of the full budgets to be presented at the Commission in January 2011.  Many details remain to be seen, not the least of which will be the TTC’s reaction to the prevailing political mood after the October 25 election.

In this article, I will deal only with the Operating Budget, and will turn to the others in future posts.

The Commission adopted the report’s recommendations:

  1. That staff be instructed to take appropriate action to ensure that service commensurate with approved loading standards is in place commencing in January in response to the better-than-budgeted ridership this year (estimated at 476 million) and continued growth next year (projected at 487 million);
  2. That the Chief General Manager be authorized to pre-approve the hiring of workforce (required prior to City Council approval of the 2011 budgets) necessary to meet service requirements and specific capital program needs consistent with existing service standards and approved capital plans;
  3. That staff continue to develop and finalize the 2011 operating and capital budgets for presentation to the Commission at the January 2011 meeting, and;
  4. That the Chief General Manager be instructed to discuss with the City Manager appropriate strategies for the deployment of the projected 2010 TTC Operating Budget surplus to the maximum benefit of the TTC and the City.

Riding in 2010 has been strong, and the drop anticipated from January’s fare increase did not materialize.  Indeed, total riding for 2010 is expected to be 476-million, 14m greater than budget, and 5m greater than 2009 actual.  For many years, the TTC has anticipated its riding would track the employment levels in the Toronto Metropolitan Area.  This trend (shown in the chart on page 2 of the report) has generally held true, but there are notable exceptions.  This shows that other factors are at work and do disrupt the overall pattern.

Notably in 2010, employment fell, but TTC riding continued to rise.  One observation related to me by TTC planning staff but not mentioned in this report is the disproportionate fall in employment in suburban areas, primarily in manufacturing, where TTC has a lower market share, with continued strong employment in the central city.  Moreover, 60% of TTC riding is outside of the peak period.  Although low employment would likely trigger a cutback in discretionary trips, again one must consider where the jobs are lost.

For 2011, and with no allowance for the effect, if any, of a fare increase, riding is projected at 487m, or 2.3% above the projected 2010 level.  Service will be budgeted accordingly.

When reading TTC budgets, one can easily be confused by the reference base to which future, current and historical costs are compared.  When the TTC says something will go up (or down) by X, they usually refer to the budgeted revenue or expense, not the actual value.  In some years, where there is only a small variation, this is effectively the same thing.  However, in years where riding, revenues and costs are not at budgeted levels, the references get tricky.  In the following discussion, I will try to sort these out.

Information about year-to-date experience in 2010 can be found in the Chief General Manager’s Report, although the detailed figures do not appear in the online version.

Operating Budget and Projection (from CGM’s Report, Appendix A)

Without a fare increase, revenue would rise by $53m or 5.6% relative to the 2010 budget.  However, $35m of this is due to the strong 2010 riding, and the projected actual revenue is higher than the budgeted value.  The remaining $18m of additional revenue (1.8% over the projected 2010 value) comes from additional riding.  Revenue typically grows more slowly than riding because some customers trade up between fare media (single fare, tokens, passes) and existing pass holders ride more for the same price.

On the expense side, costs are projected to rise $106m (8%) relative to the 2010 budget, or $115m relative to the 2010 projected actual expenses which are lower than budgeted.  This increase comes from several factors:

  • $11m for the arbitrated wage increase to TTC employees.  Although the increase was 3%, it took effect in spring 2010, and only a partial year’s effect is included in this budget.  There is no provision for wage increases in the preliminary 2011 budget.  This is consistent with past practice, but the absence of projections for the effect of fare and/or wage increases requires readers to make their own calculations.
  • $13m for service adjustments mainly due to ridership gains as well as the proposed November 2011 implementation of the first phase of the Transit City Bus Plan.  Note that the original 2010 budget included service cuts in both the spring and fall anticipating lost ridership.  Part of this increase arises from comparison with budgeted, not actual figures for 2010.
  • $5m for fuel and energy.  The 2010 budget for fuel and traction power was $123m, but the projected actual cost is only $114m due to lower than anticipated fuel prices.  This means that the increase from 2010 actual to 2011 budget is $14m, or 12%.  Some of this arises from service increases, some from cost escalation.
  • $15m for benefits.  This is about 6%, again driven both by service increases and cost escalation.  There is no provision for any negotiated increase in benefits.
  • $5m for accident claims.  This is about 10%.
  • $11m for customer service initiatives.
  • $20m for unamortized post-employment benefits.
  • $26m for other increases including general inflation, cost of parts, depreciation on capital purchases that do not receive 100% subsidy and other costs.

Without any change in fares or subsidies, and no labour cost increases beyond the end of the current contracts, there would be a $53m shortfall in 2011.  However, this is relative to the 2010 budget, not the 2010 projected figures.  For 2010, the TTC expects a $44m “surplus” in the sense that its net subsidy requirement will be less than expected.  The TTC includes the full 2010 budgeted subsidy as a starting point for 2011.  I expect that this approach will lead to much confusion and mis-quoting of numbers as we work through the 2011 budget.

Here are the numbers consolidated into a single table.

2010/2011 TTC Operating Budget Comparison (millions)

              2010       2010       2011
             Budget     Projected  Budget

Ridership       462        476        487 

Revenue      $  941     $  976     $  994
Expenses      1,371      1,362      1,477
Subsidy Reqd               386        483
Subsidy Avl     430        430        430?
"Surplus"                   44
Shortfall                              53

Note:  The subsidy available for 2011 is assumed to be the same as the budgeted value for 2010, not the probable actual value.  Depending on who is talking, we will hear either that the extra expense in 2011 is minimal (using the “surplus” from 2010 as a carry forward to offset the 2011 costs), or that there is a jump of $97m, or over 25%, in the subsidy requirement.  The latter will be used as an excuse to beat the TTC about its profligate spending.

The TTC would do well to present its future budget details relative both to current budget and projected actuals so that the effects of current and future service, revenue and cost changes can be seen independently of each other.  Put another way, the cost and revenue due to riding growth in 2010 is already part of the base system in any framework other than the artificial budget-to-budget one used by the TTC and City Finance staff.

There is an overall City target of 5% reduction in spending relative to 2010 budget.  This implies a City subsidy for 2011 of $387m.  If Queen’s Park comes through with $100m, a number suggested by one mayoral candidate, this will bridge the gap for one year, but the long-term problems remain.

Every 1% increase in labour costs adds about $10m to TTC expenses.  As I write this, it is unclear what, if any, success Queen’s Park will reach in its attempt to negotiate wage freezes with the public sector, and legislation to impose such a freeze would doubtless form part of a robust provincial pre-election debate in 2011.

The TTC anticipates that a 10-cent fare increase would generate about $22m in new revenue.  This gets a bit tricky given the experience of 2010’s jump in fares.  Although everyone expected riding would drop, in fact it grew showing that the usual formulas regarding “fare elasticity” (if fares go up by X% then riding goes down by Y%) are affected by factors other than price.  Indeed, the TTC has long argued that service is the most important determinant of riding.  When fares go up and service goes down (the mid 1990s scenario), then riding will plummet.

Fare revenue for 2010 was budgeted at $888m, but will actually come in at about $923m, almost 4% higher.  Looked at another way, the stronger ridership produced revenue at roughly the same level as the “standard” formula would derive from an additional 15-cent fare increase.  Although almost all additional riding bears a cost in subsidies, it also reinforces the value of the TTC as a public agency.  Budget discussions must focus on continued service quality and riding growth as these are essential to the city’s health.

The TTC operates its own system for pensioners, and there is a considerable gap between the level of reserves in this system and the actuarial exposure.  Starting in 2012, if the TTC is required to make whole this deficit, there will be an additional $42m annual cost to the system for many years to come.  Whether this payment will actually be demanded by Queen’s Park (whose regulations govern pension solvency matters) remains to be seen.  The TTC’s position is that the transit system is not going out of business, and therefore should not be required to fully fund future liabilities from current assets, especially when the rate of return on investments is at an historic low level.

The staff report (at page 6) shows “pro forma” revenue, expense and subsidy statements out to 2013.  These are meaningless because they do not factor in any change in labour costs, fares, subsidies or general policies about transit operations.  Without question, transit will require more subsidies unless there is a fundamental change in the City and Provincial attitude to the role of transit in the GTA.  The policy framework will determine whether the transit system thrives, muddles by, or enters another era of decline.


To correct information put about by some of the less well-informed local media and mayoral candidates, absolutely none of the operating subsidy paid to the TTC in 2010 comes from Queen’s Park or Ottawa.  All of the gas tax, from both levels of government, goes to fund the Capital Budget.  The total subsidy required just for TTC operations in 2010 exceeds the combined value of both gas taxes.

11 thoughts on “TTC 2011 Budget Preview — Part I: Operating

  1. “All” is 2¢ per litre of the gas tax for Ontario, the rest for to Ontario’s provincial highways (not local roads). As well, the 2¢ is a fixed amount, if the price of gasoline doubles, it will still be 2¢. The provincial portion of the HST on gasoline goes into general revenue of the province.


  2. Toronto should hike property taxes or the vehicle registration charge high enough to cover the subsidy and leave it at that. Other cities cover their operating subsidy the same way, through taxes – only Toronto seems to think it can get away without paying the bill.

    What makes Toronto more special than Vancouver, Calgary, Edmonton or Ottawa?

    Steve: One vital point often missed in discussions of taxes is that transit riders pay them too. Indeed, in Toronto, someone who rents (like me) pays tax at a higher rate than someone who owns because apartments are taxed as businesses. Often “tax waste” on public transit is spoken of as if only non-transit riders pay taxes when, in fact, a huge block of tax revenue comes from people who use transit, pay taxes and expect something to show for it.


  3. “…someone who rents (like me) pays tax at a higher rate than someone who owns because apartments are taxed as businesses…”

    How do you know that you pay more tax? Sure the rate is higher but doesn’t your landlord have a broader set of deductions than a residential homeowner (mortgage interest, deprecation, maintenance, etc)? Have you asked your landlord what his net tax bill is? Have you compared it to a similarly valued residential property? Is there any reason to believe that the entire tax bill has been passed to you? Many financial sites recommend renting in the current market even if you are paying slightly higher tax (maybe a couple hundred) aren’t you saving thousands in interest? Isn’t this a straw man argument?

    Steve: The issue of overtaxing of tenants has been a matter of record in Toronto for a very long time, and the city is actually working on reducing this gap. It is not just a question of “similarly valued property” but of looking at the tax burden for a unit of a given size and quality. Based on a proposal at my site some years ago to buy out the building for conversion to a co-op (the same would have applied to condo conversion), the change from commercial to residential status would have reduced our collective tax bill by over half a million dollars.

    Mortgage interest deductions come off income tax, not realty tax, and it is unclear whether an owner-occupied unit would carry, long term, as large a mortgage as a commercial property whose revenue stream can be used to finance borrowing. People who own houses and condos tend to want to pay down their mortgages. Regardless of the deductions available to my landlord, I am still paying a substantial tax to the City and am just as much a “taxpayer” as someone across the street living in a house.


  4. We keep talking about taxing the Toronto/GTA Citizens, however, we should pull a page out of some of the large U.S. cities’ revenue generation methods and put a room tax on hotels. Now before you go crazy and say that it will kill tourism, Las Vegas is a prime example of room surcharges by Municipalities.

    Even $1/day surcharge will bring in a good amount of money. The amount of new hotel space being built around the downtown core and all the Conventions that happen here are revenue sources that are waiting for exploitation. This will keep the tax man out of our wallets.

    Steve: Actually, there already is a hotel room tax. The proceeds are used to advertise the city for tourism and conventions. There are roughly 35,000 hotel rooms in the Toronto area (this figure is taken from a convention planning site and likely includes rooms in the 905). Even if all of them were occupied every day, that would bring in only $12.7-million per year. This is a nice budget for marketing the city, but hardly for making a huge dent in the TTC’s funding problems. For the overall regional transit funding shortfall, Metrolinx has already identified a need for $2-billion or more annually.


  5. Steve’s arithmetic is right, assuming a $1/night “tax” which is actually NOT a hotel tax but a 3% Destination Marketing Fee (DMF) collected by the Greater Toronto Hotel Association or GTHA to be used to promote the Greater Toronto area via Tourism Toronto’s 2010 BUSINESS PLAN & ANNUAL BUDGET with the actual DMF (and other) revenue generated presented to the GTHA Board.

    It seems the 3% DMF fees has declined precipitously from ~$30.8M in 2008 to a projected $12.4M in 2010, now accounting for about ~50% of Tourism Toronto’s total budget (~$30M) the largest chunk, ~$15M coming from the Province. I’m not sure if the GTHA lowered the 3% DMF rate with difference made up by province.

    When I was on the Tourism Toronto Board 10 years ago, their marketing spending was just a paltry ~$8M — behind both Montreal & Vancouver’s CVB promotional spending; a quarter of today’s spending with the DMF and more generous provincial support.


  6. Here’s a question: if all those pesky 905 people who ride TTC stopped doing so, would TTC would require higher or lower subsidy in total? (Assuming that service was reduced to match the new, lower demand).

    Steve: This is tricky. Those riders who enter the TTC at its outer points and contribute to demand mainly on the subway are consuming capital and operating resources. We already know that the Spadina Subway extension will cost more to operate that the TTC will receive in marginal fare revenue. However, many riders come in via GO to Union and use counterpeak TTC capacity. If they disappeared, we would lose their revenue but would not be able to cut any service.

    The larger context is that those trips would not disappear. If they are not taken on the TTC, then either they would have to (if possible) migrate to GO where riders would pay more for their trip and get, probably, less convenient service, or they would drive contributing to congestion and demands for more road space likely at transit’s expense.

    The problem, as always, is that if we only look at the TTC’s books, we “lose money” on these riders. If we look at the greater picture, we want all the 905 riders we can get. Alas, the bean counters (and politicians who would be thrown out of accounting school in first term) don’t think on that scale.


  7. The blurring lines between 416 and 905 are pointing towards regionally integrated transit. We’ve done it for rail, why not bus and subway?

    Toronto cannot afford to pay for the TTC on its own anymore and Ontario deserves better options for getting past Toronto. Uploading the TTC to Metrolinx would shift the shortfall from $154.40 per Torontian to $33.85 per Ontarian.

    Get the politicians off the board, and maybe their decisions will be more practical and less pandering.

    Steve: One need only look at Metrolinx to see how things actually work in a politician-free environment. The real decisions are made at Queen’s Park, and the board is there mainly for show. There is almost no public input. If that’s how you want your transit service to be provided, then your recipe works just fine. Don’t call me when your bus doesn’t show up, or only runs once an hour, or when the outer parts of the subway close at 9 pm.


  8. Steve: One need only look at Metrolinx to see how things actually work in a politician-free environment. The real decisions are made at Queen’s Park, and the board is there mainly for show.

    To be obscenely technical, that’s not really a politician-free environment when you have the Ontario Government making all the real decisions. That’s stating the obvious since that’s where the money comes from, but I believe in calling it what it is; Metrolinx is not a politician-free environment, it’s an arm of the government masquerading as something independent.

    I think it is important to remind ourselves that making transit independent of politics at this stage is not realistic because politicians have been pulling the purse strings with at least capital projects for around 50 years now, starting with Bloor-Danforth (and the attached string of the demise of zone fares), which has been fouling up the business model for decades. If we wanted to leave the TTC to operate independent of the governments in 1954, that would have been fine, the financial means to do that were in the TTC’s possession. Now it is locked into a system that ensures it can never again obtain that financial means because of capital projects like Spadina and Sheppard that made abhorrently poor business sense but were pushed through by political “oomph.”

    To top it off, the road network, and especially the expressway network, has been subsidized to such an outrageous degree that transit can’t compete with it in a business environment due to unfair competition. If you want privatize transit in full, privatize the road network in full, too, or else the experiment is a failure before it begins.

    Steve: The model clearly implied by all of the candidates who advance it is an “expert” board that has no professional politicians on it, but the budgetary constraints will obviously rest with Council and Queen’s Park. Moreover, the moment those experts make a service change without consulting the affected ward councillors, all hell will break loose. Try calling a member of Metrolinx to complain about your GO service, especially some of the more esoteric branches.

    The so-called independents sitting on such boards are just as much “politicians” as the people who appoint them. They jockey for position. They support the right party, they know the right people, but they don’t have the annoyance of campaigning. Mind you, it would be amusing to see some of the “professionals” in a position where they were not being paid to tell people what they already want (the classic consultant), but to advise them on what they should do.


  9. The TTC and the city of Toronto can ask for more provincial money, once they bring the property taxes in line with the rest of the province. Resdential property taxes are way too low and you’ll have a hard time getting support from the rest of the province when someone in Kingston or Coburg is paying more in property taxes, getting a third of a services then a similarly priced residence or sized property in Toronto. If Toronto still doesn’t have enough money for the TTC, after bringing the property tax in parity with the rest of the province, then you could look at other means of funding.

    Steve: Property taxes elsewhere are higher because they don’t have the commercial/industrial base. Meanwhile, Toronto exports millions every year via the education levy to other parts of the province. Businesses, one of the main beneficiaries of spending on public works such as transit, scream every time any increase is proposed in their taxes. The inbalance between commercial and residential rates will be ironed out over the coming years, but that still won’t change the relative level of residential tax per $1000 of assessment. By the way, $500,000 would buy a decent but unspectacular residence in Toronto. In Coburg, it would probably buy a small palace.

    The cost of providing services to a “family” (however one wants to define that) is going to be comparable from one city to another allowing for factors such as the local cost of living. Emergency services, roads, etc., are common to all cities, but simply more numerous and bigger in large cities like Toronto. Of course we have a transit system to support too. If it costs, say, $2,500 to provide municipal services to a “typical” family, then that’s going to determine the tax level regardless of the underlying value of the property. Towns with cheaper real estate will have higher tax rates to compensate.

    Anyone who suggests that Ontario shouldn’t fund Toronto projects because we undertax our residential property ignores the fact that the Toronto (and the GTA) subsidize much of the rest of the province. We don’t complain (much) because it is unseemly for people living in the centre of the universe to behave that way.


  10. The assertion that property taxes are higher because they don’t have a commercial/industrial base is laughable as well. Suprisingly, if you do a bit of research into this topic, the majority of communities along the 401 corridor have quite the strong industrial/commericial base. Also, those cities are not in debt!

    People outside of Toronto pay more property taxes and recieve a 1/3 of the services than a resident of Toronto does. Do you understand this fact?

    With this lack of parity, you will never get the political support of the rest Ontario to send money into Toronto to fund, expand or create new services in this city. If you think increasing property taxes in Toronto has bad political optics then alternative you propose is even worst!


  11. “the majority of communities along the 401 corridor have quite the strong industrial/commericial base. Also, those cities are not in debt!”

    I believe Mississauga is about to start borrowing.

    According to 905 logic, the mistake Toronto made with the Leslie Spit was we didn’t build triple garage suburban homes on crescent shaped cul de sacs rather than create a park and use the development charges to pay off operating expenses. Also – why is High Park still green – chop down those cherry blossom trees – we need more big box malls!


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